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Hewlett-Packard faces unfocused future

Carly Fiorina resigned Wednesday as CEO of one of the largest tech companies in the world. The controversial decision maker executed bold initiatives, but what happens now to HP users at the enterprise level? And what went wrong?

With Carly Fiorina ousted from Hewlett-Packard, a lot of people want to know, "What's next? As best anyone can speculate, not a whole lot. Not immediately, anyway.

In the short term, not much is going to change for HP customers. The company is sticking with the Itanium line; PCs and imaging are strong and it's not likely you'll see any changes there. According to Charles King, principal analyst at Hayward, Calif., Pund-IT Research, the company works on projects 18-24 months out, so change at the top will not have an immediate effect.

In addition, Robert Wayman, interim CEO and current chief financial officer, has promised to stay the course at least until a permanent CEO is appointed. Instead of focusing on execution issues, which according to critics was Fiorina's downfall, the new CEO will likely look to reconsider business strategy.

"The board would be making a huge mistake to bring in someone to execute the plan as it exists," said Gordon Haff, senior analyst at Nashua, N.H.-based Illuminata Inc. "There has never been a true strategy that defined HP that was backed by real actions."

According to Haff, there will likely be changes that will emphasize product lines and deemphasize others. And that could mean changes for HP customers. "If I were an enterprise customer, I wouldn't be biting my fingernails, but I would be preparing to deal with changes down the road. Changes happen all of the time without a leadership turnover, but this certainly accelerates that possibility."

These changes would mostly affect customers of HP's IT outsourcing model, Adaptive Enterprise. Most analysts would agree that the program was a reactive response to IBM's on-demand structure, but it has produced steady earnings for HP. "I would advise anyone to be nervous," Haff said. "But even though the printing dwarfs their enterprise division, no one is going to turn off a clear revenue stream."

What went wrong?

Fiorina bet her job on the Compaq merger. Was it a smart move? Analysts said the endeavor had a lot of potential for success, but it never came to fruition.

According to Clay Ryder, executive vice president with Union City, Calif.-based Sageza Group Inc., when the merger was announced in 2001, each company had its own complementary technologies and strengths that could have positioned HP to compete for the enterprise.

Compaq had a very good alpha storage server and good products in the Tandem line. But HP treated the merger like a flea market and thought they'd be able to redecorate with the things they bought.
Charles King
Principal AnalystPund-IT Research

"Compaq had a very good alpha storage server and good products in the Tandem line. But HP treated the merger like a flea market and thought they'd be able to redecorate with the things they bought," King said.

Following the merger, strong executives in the storage division, lead by Mark Lewis, abandoned ship. Lewis was courted to HP storage rival EMC, and has steadily lost ground against the company since, proving that Lewis was the best executive to run day-to-day operations of the division.

"Very often, the executives that can make that type of thing happen are not the best people for running the day-to-day operations of the company," King said. "If you look at revolutionary leaders, the people that foment revolution are not always the best caretakers of what they create. Carly Fiorina will likely end up in that category."

In addition to the merger, Fiorina was also notorious for her struggle to keep HP from breaking its printing, PC and enterprise lines into separate divisions. Wall Street continues to push HP toward spinning off its healthy print/imaging sector, but according to analysts that may not be the answer.

The company is ripe for reorganization. Separating enterprise, PCs and printers into divisions would be easy after a change of command. But would it be a good idea? "Printers and PCs are making money, enterprise is losing money, but the idea is to create two enterprises that can succeed. That may not be the best way to do it," King said.

When CEOs take big gambles and they don't work out, they get the loss in their column. As the first leader to come into the company from a non-HP culture, Fiorina's execution of her vision faced an uphill struggle. "But her vision didn't match up with the reality of the marketplace or the board's satisfaction," Ryder said.

"In the IT industry, more than others, companies are associated with their executives," King said. "Ellison, Fiorina, Gates -- they're rock stars. Fiorina is a rock star who hasn't had a hit since 2001. But at least she hasn't had any jail time."

For more on the HP exec story:

Customers express relief at departure of HP's CEO

HP CEO Fiorina resigns

While HP supporters have mixed feelings about the move, the stock market liked the deal. Conventional wisdom is that if HP picks someone interesting to succeed Fiorina, market confidence will continue to go up. "It will be interesting to see if HP looks inward or out to another CEO. Looking inside wouldn't be in their best interest. They did that for years," Ryder said.

Much of the buzz around possible successors focused on Michael Capellas, former CEO of Compaq who sold the company to HP. Capellas is now CEO of MCI Inc., and according to analysts, preparing to sell the company. "If Capellas is successful in selling MCI, he'll need a job," Ryder said.

"Capellas is a bright guy and he knows HP. He worked as Carly's second in command," King said. "He'd make an interesting choice."

Let us know what you think about the story; e-mail: Matt Stansberry, News Editor

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